The pole position – a blessing or a curse for FDI?

Slovenia’s business makeover has not been a bumpy ride experienced by other economies in transition at the beginning of the 1990s. Slovenian companies were a target for foreign interest as early as in the late 1970s thanks to Slovenia’s manufacturers of household appliances, cars and commercial vehicles, furniture and garments. Conveniently nestled between Austria and Italy, Slovenia has traditionally served as a gateway for exports to the discerning markets of West Europe even in former Yugoslavia.

Much has been done to boost the country’s attractiveness as a place to do business between Slovenia’s independence and today. The call for political action was backed within the framework of effort to become a full EU Member State and awareness that the Slovenian internal market was not fully integrated, which in turn meant a lack of competition in some sectors and increased operating costs for foreign investors.

Following the political consensus, liberalisation of the internal market has been built continuously since 2000 as the Slovenian economy become fully integrated with the EU economies, joined the EU in 2004, qualified for Eurozone and adopted the euro on January 1, 2007, and entered the EU Schengen in December 2007.

Adding value
Despite the country’s good economic performance, the government is committed to continuing efforts to improve micro-economic conditions to enhance GDP growth. This includes measures to increase competition by liberalising previously sheltered industries such as electricity, energy, telecommunications, and to dismantle administrative hurdles. In response to the critics quoting Slovenia’s excessive red tape and the shortage of land for industrial use, the Slovenian authorities got down to the business of changing the country’s business landscape attractive to foreign investors. Since 2000, registering a company in Slovenia has been greatly facilitated in many ways including electronic access to practically all public administration services, and the number of locations for property development and redevelopment to technological parks and economic zones has jumped.

When foreign investors consider locations to relocate or expand operations, the attractive tax regime of the eastern Alpine country bordering the Adriatic Sea is a reason to shortlist it. The present government deserves much of the credit for Slovenia’s tax reforms: a gradual corporate tax rate reduction aimed at promoting a pro-growth economy, phasing out of pay-roll tax, a relief on personal income tax. Tax allowances are in place for investment in research, technology and development, while greenfield foreign investment projects in manufacturing and sectors with high value added are eligible for financial incentives when they create new jobs. With tax revenue accounting for some 40 percent of GDP in 2005, Slovenia’s tax rates are lower than in many other European countries and converge with the EU27 average.

While traditionally taxes have been one of the key reasons for locating and investing away from home, transparent and stable political, legislative and administrative environment, the ease of getting about: good transport to airports, good rail links, availability of schools and good quality accommodation, as well as quality of life in general, should tip the scale in favour of Slovenia. The government’s ambition is to make Slovenia the leading European choice of international companies for locating international/European headquarters, an R&D centre, or a centre for administration and/or accounting functions. The government reforms have helped Slovenia’s economy increase its competitive edge and appeal to foreign investors without overheating the economy. Thanks to a wide-spread use of the first common financial reporting standard – IFRS – investors can compare statements produced in one country with those produced in another and exploit the advantages of mobile technology and broadband penetration where Slovenians themselves are early adopters both for business and private purposes. Today investors can benefit also from lower transaction costs arising from the single currency and the implementation of the Single Euro Payments Area (SEPA) where the current differentiation between national and cross-border payments no longer exists. This means that customers within the SEPA are able to make payments throughout the whole euro area as efficiently and safely, and above all at the same price, as in the national context today.

More ingredients for a recipe to attract FDI
Many Slovenians speak English, German and Italian and the Slovenian economy has all the attributes of an open and dynamic system without high leverage. Its budget revenues and expenditures are balanced, services generated 64.4 percent of GDP (2007 estimate) leaving industry behind (33.5 percent), gross fixed investment accounted for over 27 percent of GDP (2007 estimate), value added grew most in construction (well over 18 percent) followed by manufacturing (slightly more than 8 percent). Financial intermediation, trade and transport enjoyed high growth rates, and the only figure to spoil the picture of prosperity was the fact that in 2007 consumer prices increased by 5.6 percent.

In other words, the level of external debt is sustainable leaving room for more private equity and M&A activity. The Resolution on National Development Projects for the Period 2007-2023 lists several national projects worth some €24bn of which some €15m in private equity through public-private partnership.

In conclusion, although foreign direct investment (FDI) is generally perceived a source of economic development and modernisation, income growth and employment, it should truly be a ‘win-win’ situation for both the investor and the recipient country. Over the past seven years, Slovenia has established a transparent and effective enabling policy environment for investment and has built the human and institutional capacities to attract foreign investors. If its FDI stock appears modest in comparison with other CEE countries, it has something to do with the proverbial prudency of its people and their system of values where diligence and loyalty go hand-in-hand with creativity and innovation that are often key to the success of a business. A good pole position seems to make people more prudent and more environment-concerned. In the long run, it should be good for the investor and the host country.

Why invest in Slovenia?
A strategic location as a bridge between Western Europe and the Balkan States boasting strong levels of efficiency and productivity.

A well developed transport infrastructure both on dry land and through the sea port at Koper to serve some of Europe’s major transit routes.

A proficient and skilled labour force boasting a high degree of IT and technological prowess, from electronics to financial services.

All attributes to become a location of choice of international companies for international or European headquarters, an R&D centre, or a centre for administration/accounting functions

Slovenian Ministry of the Economy identifies development priorities
The priorities of the Slovenian EU Presidency in the field of energy, telecommunications and industrial policy – sustainability, competitiveness and security of energy supply with focus on the internal gas and electricity markets, renewable energy sources, energy technology and external energy policy. Energy and waste management offer a host of opportunities for foreign investors (PPP).

The Resolution on National Development Projects for the Period 2007-2023 lists several national projects worth some €24bn of which some €15m in private equity through public-private partnership.

The areas of wholesale and retail trading such as in electronics and garments, as well as consultancy services remain investors’ favourites, but further opportunities exist in sectors such as IT, pharmaceuticals, banking, insurance and telecommunications. Niche sectors and boutique companies may not be high-profile but thanks to specialisation stand to fare better than large household names that often lack flexibility in meeting customers’ needs. From electronic components to sailing boats, from racing skis to roulettes, from ultra-light aircraft to motor exhaust systems – these are some of the products ‘Made in Slovenia’ that do not fear competitors.

Efforts to improve macro-economic conditions to boost GDP growth and attract FDI have delivered the following preliminary figures for 2007:

GDP growth                    6.1 percent
GDP (at current prices)      €33,542m
GDP per capita                     €16,616
Exports growth                 13 percent
Imports growth              14.1 percent
Employment growth         2.7 percent